Making a comeback

Memorial Hospital starting to hit its stride under UCH lease

Three years after inking a 40-year lease of the city-owned hospital with University of Colorado Health, the city has yet to receive a "margin sharing" payment — although the first payment might come within a few months.

The agreement, which began Oct. 1, 2012, requires UCH to pay the city $467,676 a month, or $5.6 million a year, regardless of the hospital's fiscal performance.

File Photo

UCH is on track with improvements at Memorial.

Those payments have totaled about $16.8 million since the lease took effect.

The agreement also requires UCH to pay the city a cut of the action if the hospital prospers. But Memorial only recently posted more revenue than expenses.

In the fiscal year ending June 30, 2013, it lost about $6 million, according to figures provided by Memorial. In fiscal year 2014, Memorial showed an operating loss of $19.3 million.

For the most recent fiscal year, unaudited data show Memorial posted operating income of $53.5 million. That performance could lead to the first “margin share” payment to the city, says UCH spokesman Dan Weaver. He declined to say how much that will be, however, adding via email, “We’re happy to provide the amount of that margin sharing payment as soon as the audit of our financials is final and we notify City Council of this and our other annual updates,” possibly in December.

If the operating EBITDA exceeds 8 percent, Memorial would receive 5 percent of that overage, according to the lease. (Children's Hospital plans to build a new facility next to Memorial Hospital North, at Briargate Parkway and Union Boulevard, but profits from the Children's expansion aren't included in a margin share arrangement, according to the lease.)

UCH also made a $259 million up-front payment to the city for the lease, but $190 million went to the Public Employees' Retirement Association to settle a lawsuit over removal of Memorial employees from the retirement plan. The payment is designed to assure PERA is able to pay Memorial workers' benefits going forward.

On the upside, UCH has invested more than $90 million in Memorial, according to Weaver. Improvements include upgrading patient rooms at Memorial Central, installing an electronic medical records system, upgrading equipment such as CT and MRI scanners, and other work. UCH is required to invest $90 million in Memorial in the first three years of the lease, and all of those together reach that goal.

The chief beneficiary of the lease is the Colorado Springs Health Foundation, a nonprofit overseen by nine people nominated by the mayor and appointed by City Council.

As of December 2014, the foundation had $80.2 million. But by Aug. 31 (the most recent report available), the balance had fallen to $78.5 million due to "market volatility" taking a toll on the foundation's investments, says Cari Davis, foundation executive director.

While the foundation's purpose is, as its website says, to "provide grants that target immediate health care needs and encourage healthy living" in El Paso and Teller counties, so far not a dime has been spent on such programs. That will change in 2016, Davis says, when the foundation expects to begin making grants.

So is the lease a good deal for Colorado Springs? Without a doubt, says former City Councilwoman Jan Martin, who championed the transaction.

"Memorial wasn't positioned to take advantage of the changes in the health care industry," Martin says. "I'm more confident that Memorial Hospital is better situated to deal with those changes."